Coca Cola needs fresh juice for its India fizz

Coca-Cola’s core business in India hasn’t been growing. It posted a decline in volume sales in the first quarter of this year, following a similar decline in the last quarter of 2016. Photo: Pradeep Gaur/Mint

Last week, James Quincey, president and chief executive officer of Coca-Cola Co. announced on a visit to India that he wants to make this country his company’s third-largest market globally. Currently, India is in sixth place, trailing the US, Mexico, China, Brazil and Japan.

If it does happen, India’s rise in Coke’s hierarchy of markets would be a strange and unwanted honour and moreover, one that will be in defiance of its recent fortunes in the country.

Coca-Cola’s core business in India hasn’t been growing. It posted a decline in volume sales in the first quarter of this year, following a similar decline in the last quarter of 2016. According to Euromonitor, between 2014 and 2016, Coca-Cola India’s market share shrank from 35.5% to 33.5%, even as the share of carbonated soft drinks (colas) dropped.

Between 2012-13 and 2015-2016, Coca-Cola India Pvt. Ltd’s profits went up from Rs320 crore to Rs474 crore on the back of revenue growth of 22% from Rs1,438 crore to Rs1,757 crore, according to the company’s filings with the Registrar of Companies (RoC). These numbers, however, only flatter to deceive. Its 2016, sales of Rs1,757 crore in India accounted for less than 1% of its global sales of $41.48 billion.

So, how exactly would the company’s India business rise in rankings unless the decline in sales in the three other markets it is expected to overtake is even sharper?

Strangely, that indeed is the case. In Japan, where the company has been a runaway leader in soft drinks, the market is expected to remain flat in volume terms. In any case, the Japanese don’t drink the company’s famed Coke, opting for healthier drinks like the Georgia brand canned coffee, orange-flavoured water and of course, green tea. In China too, the share of carbonated drinks within the overall segment declined, from 29.8% in 2002 to 11.5% in 2016-17. And in Brazil, another market ahead of India, it has posted a double-digit decline in the volume of cases it sells.

What’s more, even the top two markets for colas hold out little hope for the 125-year-old company. In the US, soft-drink volumes are in terminal decline, with per capita consumption falling to a 31-year low, according to trade publication Beverage Digest. In Mexico, two years after a sin tax was introduced on sugary drinks in an effort to curb the alarming incidence of obesity in the country, sales have declined by 7.6%. A study by the University of North Carolina’s Gillings School of Global Public Health and the Mexican Instituto Nacional de Salud Pública (National Institute of Public Health) found that the tax, which is just 1 peso per litre of sugary drink, had its biggest impact on the poorest households, which reduced their consumption of sugary beverages by 9% in 2014 and 14.3% in 2015.

If despite this, the larger category of beverages has grown worldwide, it is because of newer and healthier segments like juices and dairy drinks. Coca-Cola too has been busy diversifying into fruit juices, dairy products, tea and coffee drinks and while currently 70% of its business comes from aerated drinks, the company is targeting a 50:50 split of aerated and non-aerated drinks by 2025. But that’s a direction the cola giant took only kicking and screaming after it realized that the transition to diet sodas as a face saver hadn’t quite worked either. Diet sodas sold by Coca-Cola and PepsiCo Inc. posted steep volume declines in 2016.

So, for growth, it will have to be Coca-Cola the juices company in India. It isn’t a nomenclature that rings right for a company that’s always been best known for its fizz. Indeed, its next big product launch is likely to be Coca-Cola Zero Sugar, a healthier Coke Zero with no calories and sugar.

India’s packaged juices market is led by Dabur, whose Real juices control more than 50% of the market in value and volume terms, ahead of PepsiCo’s Tropicana. In addition, newer entrants like ITC’s B-Natural and Paper Boat have made rapid strides with their indigenous drinks sold imaginatively.

Coca-Cola’s future in India as much as worldwide depends on tapping this market. That it plans to invest nearly $800 million (Rs5,150 crore) over the next five years in procuring processed fruit pulp and fruit concentrate for its portfolio of juice and juice drinks and carbonated drinks with juice products, indicates the direction it is taking.

Coke Juicy anyone?

Sundeep Khanna is a consulting editor at Mint and oversees the newsroom’s corporate coverage. The Corporate Outsider will look at current issues and trends in the corporate sector every week.